Traders dump diamonds, go for gold & equity trade

February 28, 2009

Commodity Online
SURAT: Reeling under sever financial crunch following the recession in US, India's diamond traders in the diamond city of Surat in Gujarat state are now hunting for new avenues to tide over the situation.

Since recession has improved the prospects of gold in the global market, diamond traders are now banking on gold to make some fast bucks.

Hit by the slump in the US market, Surat’s diamond traders are now looking beyond precious stones to equity trading and gold futures.

In fact, many of them have already increased their exposure to gold futures over the past few months.

Diamond traders say that while they do not plan to give up their traditional business, they are looking to diversify their income stream in a bid to offset the current difficult times.

The need to look at other avenues has arisen because of a sharp fall in export demand.

Exports of cut and polished diamonds fell 26.3% to $663.2 mn in the current fiscal (up to December 2008) from the corresponding period last year. Cumulative diamond exports during the same period rose a mere 2.35% to $10.28 bn.

To be listed as a broker on India's National Stock Exchange’s cash market, wholesale debt market and F&O segment, requires an interest free deposit of Rs 2.6 crore, apart from net worth requirements and regulatory clearances from Sebi.

But that is not discouraging the traders. However, the operating environment for brokers on the bourses is also quite difficult and that’s because the 57% decline in the Bombay Stock Exchange's benchmark Sensex from its peak a year earlier has led to a sharp decline in volumes and corresponding commission earned by brokers.

Diamond traders point out that apart from sluggish demand conditions in key global markets, the current global credit crunch has also made it difficult for them to access credit facilities from banks to carry out their core business activities. 

De Beers, world’s biggest diamond producers, predicted that the rough diamonds sector will only see some recovery by 2010 end.

This has hit the hopes of diamond traders in Surat in a big way as their expectations of reviving the industry in a few months received a blow.

Global demand for rough diamonds is expected to drop by some 60 per cent this year as the global recession hits demand for luxury goods.

De Beers, 45 per cent owned by Anglo American Plc (AAL.L), is also expected to slash prices.

De Beers is also planning to cut jobs. Diamond sector was characterised by reduced consumer demand, low liquidity levels, industry debt and high inventory levels. Huge debts and high inventories held by cutting centres had choked demand for rough diamonds.

Until recently, the rough and polished diamond market has been estimated at $50 billion a year, but prices of polished diamonds have fallen 13 per cent since reaching a peak in August.

The United States, which accounts for about one-half of world diamond demand, as well as major consumers Europe and Japan have been hit hard by the global economic slowdown.

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